Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 in the Matter of ) ) Verizon Communications, Inc., Transfero
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Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Verizon Communications, Inc., Transferor ) ) and ) WT Docket No. 06-113 ) DA 06-1245 América Móvil, S.A. de C.V., Transferee ) ) Applications for Consent to Transfer ) of Control of Licenses and ) Authorizations Pursuant to Sections ) 214 and 310(d) of the Communications Act ) PETITION TO DENY, OR, IN THE ALTERNATIVE, CONDITION COMMISSION CONSENT TELEFÓNICA LARGA DISTANCIA DE PUERTO RICO, INC. By its Attorneys: Richard Rubin Angela R. Thompson LeBoeuf, Lamb, Greene & MacRae LLP 1875 Connecticut Avenue, N.W. Suite 1200 Washington, D.C. 20009 Tel: (202) 986-8000 Fax: (202) 986-8102 July 14, 2006 TABLE OF CONTENTS I. The Parties...............................................................................................................2 II. Standard of Review..................................................................................................6 III. The Current Condition of the Puerto Rico Telecommunications Marketplace............................................................................................................10 IV. The Applicants Have Not Demonstrated That Commission Consent to the Proposed Transfer Serves the Public Interest. .......................................................16 V. The Proposed Transfer Has Significant Anticompetitive Potential Which Requires Denial of the Application as Contrary to the Public Interest..................23 A. The Applicants’ Claims That PRTC Faces Significant Competition Is Ill-Founded.............................................................................................23 B. AT&T’s Interest In América Móvil and Telmex Represent Significant Anticompetitive Potential........................................................25 C. The Proposed Transaction Eliminates Potential Competition and Threatens Existing Competition. ...............................................................34 D. The Telmex and América Móvil Records of Impeding and Resisting Competition Do Not Satisfy the Public Interest Standard in this Proceeding..................................................................................................35 E. América Móvil Ruled to Have Engaged in Anticompetitive Practices. ....................................................................................................38 F. Telmex is the Subject of VoIP Blocking Complaints................................40 G. This Transaction Would Provide América Móvil and Its Affiliates Unprecedented Monopoly Power On Both Ends of International Voice and Data Traffic Originating and Terminating in Puerto Rico, Endangering Consumers and Competition. ...............................................41 H. The United States Government Has Been Harshly Critical of Telmex and of the Telecommunications Environment in Mexico..........................43 I. World Trade Organization Panel Finds that International Long Distance Rates Negotiated by Dominant Carrier Telmex, and other Practices, Do Not Comply .........................................................................45 J. The Experience of TLD and Its Affiliates With Anticompetitive Practices of América Móvil and Telmex. ..................................................46 VI. Mexico’s Limitation on Foreign Investment in Telecommunications Companies..............................................................................................................50 VII. Alternatively, the Anticompetitive Potential of the Proposed Transfer Requires the Imposition of Specific Conditions on Any Commission Consent. .................................................................................................................52 VIII. Disclosures Should Be Required ...........................................................................58 IX. Conclusion .............................................................................................................60 i SUMMARY Applicants have failed to show that the proposed transaction, on balance, is in the public interest. The Commission's public interest analysis involves consideration of a broad range of factors, such as the overall state of the relevant market and anticompetitive conduct, and allegations thereof, outside of traditional antitrust principles. Applicants have not shown identifiable public interest benefits sufficient to overcome the potential and dangerous competitive harms to consumers that would result from the transaction. Where, as here, potential public interest harms are so great, Commission precedent demands a more powerful showing of potential public interest benefits. Accordingly, Petitioner Telefónica Larga Distancia de Puerto Rico (“TLD”) respectfully requests that the Commission deny the application for transfer of control. The significance of the proposed transaction should not be underestimated. It involves the acquisition of the seventh largest incumbent local exchange carrier (“ILEC”) in the United States, located in a uniquely vulnerable telecommunications market with a population base of approximately 3.9 million United States citizens. On the island of Puerto Rico, the target of the acquisition, Telecomunicaciones de Puerto Rico, Inc. (“TELPRI”), parent of the Puerto Rico Telephone Company and PRT Larga Distancia, Inc. (“PRTD”) and other subsidiaries (collectively, “PRTC”) is the sole ILEC and the second largest wireless operator. Through PRTC, TELPRI has a market share in the residential local exchange market well in excess of 90% and dominant market shares in the business local exchange market, the intra-island long distance services market, the interstate long distance services market, and the international long distance services market, in addition to being the leading provider of broadband internet services. Despite privatization, Puerto Rico still suffers from an extreme lack of competition in its telecommunications markets unlike anywhere else in the United States. Indeed, almost 80% of the zip code areas on the island have no competitive presence in the local exchange market. The proposed acquirer, América Móvil, S.A. de C.V., (“América Móvil”), and its sister company, Teléfonos de México, S.A. de C.V. (“Telmex”), are tied by an almost uniformly interlocking directorship and intertwined financially through widespread business agreements and transactions. Together, under common ownership and guidance, they dominate the telecommunications markets in Mexico and much of Latin America. In Mexico, América Móvil has approximately 80% of the wireless market and Telmex is the monopolist in all aspects of the wireline market. América Móvil and Telmex have a well documented reputation as ruthless defenders of their market power, with a history of impeding competition and opposing measures that would increase the level of competition in the markets where they operate. The Puerto Rico telecommunications marketplace is a unique environment and one that is particularly vulnerable to the competition-limiting behavior in which América Móvil and Telmex have engaged and may continue if the transaction is approved. América Móvil is not qualified to take control of the seventh largest ILEC in the United States. First, it has utterly failed to carry its public interest burden. It presents itself and its plans in broad generalizations and platitudes, and says almost nothing other than what would generally be said by any putative transferee in any transaction. It offers nothing new or specific to Puerto Rico or the telecommunications market there – no commitments to maintain, improve or innovate what PRTC has already in place and no ii commitments to promote competition or to help consumers. It makes statements about general benefits that are to flow from its size and scale, ignoring the fact that it is replacing Verizon Communications, Inc. (“Verizon”) whose size and scale bests América Móvil. In short, it fails to carry its burden to demonstrate how taking control of TELPRI provides any public benefits to Puerto Rico, its consumers or to competition. Beyond this failure, América Móvil also ignores the fact that it has extremely limited experience with wireline networks, serving less than 2% of its subscribers through wireline in three Central American countries. Moreover, Puerto Rico suffers from a telephone penetration rate below 70% and actively seeks ways to increase it. América Móvil 's three wireline operations have telephone penetration rates of ranging from 3.8% to 13.8%. It has no experience and offers no ideas for increasing Puerto Rico's 70% penetration rate. As if this were not enough, Mexico's antitrust commission recently found that América Móvil had engaged in anticompetitive practices by refusing to interconnect with Nextel for the exchange of short messages (“SMS”) after having blatantly ignored a ruling from Mexico's regulatory commission requiring it to do so. Mexico's antitrust commission specifically found that América Móvil acted with the objective of impeding access to the market. Its sister company Telmex has had a checkered history before this Commission, the United States Trade Representative and the World Trade Organization for anticompetitive practices and noncompliance with requirements and commitments. Petitioner's affiliates, including Telefonica Moviles, have experienced first-hand the competition-limiting practices of Telmex and América Móvil in Mexico and Central America. América Móvil subsidiaries have a history of campaigns and covert actions, engaging in innovative